Few are expecting Rivian Automotive (NASDAQ:RIVN), which went public at $78 per share, and at one time traded for as much as $172.01 per share, to ever re-hit its high-water mark. However, there are plenty who believe that RIVN stock could at least make a partial comeback.
Over the past month, commentators and investors alike have grown cautiously optimistic about the fledgling electric vehicle maker. Several sell-side analysts have expressed that they believe the situation for Rivian can only get better from here.
Market participants have bid up RIVN on this, plus a recent company-specific development that on the surface sounds like it bodes well for its future (more below).
Unfortunately, while Rivian is not yet “out of the running” in the mad dash for EV market share, a closer look at the details suggests that, instead of a recovery, another plunge may be more likely.
It’s Hard to Make a Bull Case for RIVN Stock
Rivian is of course far from being the weakest early-stage EV company out there. There are plenty of smaller, “also-ran” names in this space, that have little-to-no chance of scaling up into large, profitable electric automakers.
Not only that, another high-profile EV upstart, Lucid Group (NASDAQ:LCID) appears to be in far worse shape. Rivian may experience problems like production setbacks and high cash burn, but Lucid is experiencing these challenges at a greater intensity, all while (as Louis Navellier has pointed out) reporting alarmingly-low delivery volumes.
That said, being in a relatively better place fails to create a cut-and-dry bull case for RIVN stock. In fact, no matter how much you dive into the details, it’s hard to make any sort of argument that this vehicle electrification play will get out of its current slump, and rev up back to significantly higher prices.
Rivian may have not only relatively less negatives than Lucid and the “also-rans,” but several factors that on the surface are seemingly positive as well. However, it may still be better to err on the side of caution, and assume that these positives will not save the day.
Further Future Fumbles
After plunging more than 90% from its all-time high, and trading at or near current price levels for several months, RIVN stock may seem like it’s not at risk of experiencing another severe price decline.
Unfortunately, RIVN may be in for further future fumbles. Here’s how. As you may recall, this EV maker has in the past reported having a six-figure customer reservation backlog. With this, there is an expectation that big sales growth lies ahead, as the company brings more production capacity online.
However, given the economic downturn, it’s questionable that this will happen. That may explain why the company has ceased reporting reservation numbers to the public. Even if economic conditions normalize sooner-than-expected, disappointing demand may still lie ahead.
As InvestorPlace’s Josh Enomoto argued last week, RIVN has moved slightly, as a production development is enabling the company to bring a lower-priced version of its R1T electric pickup truck to market.
However, this lower sticker price ($73,000 versus $90, 315) is still pricier than comparable EV truck offerings. This could mean demand challenges persist, which points to something that could have another big impact on RIVN’s stock price.
Cash Burn Woes Suggests Slide to Single-Digits
Rivian is in less of a cash crunch than Lucid, but it’s far from fully funded. The company needs to raise more money to fund its post-2025 expansion. The dilution that will result from this is perhaps already accounted for in RIVN’s valuation.
However, the level of future dilution isn’t set in stone. If high vehicle prices inhibit Rivian’s ability to turbo-charge sales growth, cash burn during 2023 and 2024 could come a lot higher than currently expected.
This could cause another de-rating of the stock, as the market factors in a greater level of dilution down the road.
That’s not to say another more than 90% price decline is in store. Even so, a move to sub-$10 per share prices may not be out of the question.
Until more suggests RIVN stock can avoid running out of range/keep rolling backwards downhill, consider it wise to keep staying away.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.